Global cap provides detour around capitation's woes

Global case rates can be attractive option

(Editor's note: This month, Physician's Managed Care Report brings you the first of a two-part series on global case rates, an increasingly popular trend in risk contracting. We start by examining the theory behind global case rate contracts, and we conclude next month with information on how to determine if the concept is right for your practice.)

Some practices feel they are in a sink-or-swim situation when it comes to capitation: They're being asked to take on risk before they're comfortable with the concept, and they often feel forced to dive in head-first. But there is a way to wade into the waters of capitation and get your feet wet first.

The concept, known as global case rates, allows providers to accept risk on patients with a specific type of disease - such as breast cancer or congestive heart failure - based on research and clinical pathways the group has developed that break out medical charges in each step of treatment. Under this concept, sometimes one diagnosis might have several different price contracts, depending on the patient's degree of illness with a particular disease.

Affiliated Physicians Network in Fort Lee, NJ, is a pioneer in this effort. The organization was founded in 1996 with 75 hematologists, oncologists, and radiation oncologists, each of whom invested at least $25,000 in the organization, says Joseph A. Welfeld, FACHE, president and chief executive officer. Welfeld spoke about global case rates at the National Managed Health Care Congress held recently in Atlanta. Welfeld has written a book titled Contracting with Managed Care Organizations: A Guide for Health Care Providers (Chicago: American Hospital Association Press; 1996).

Now the network includes 148 physicians, representing 20% of the privately practicing hematology and oncology professionals in the New York City metropolitan area. The network's physicians collectively see 25,000 to 30,000 new patients a year, Welfeld says.

"Our goal is to provide clinical services to patients by reducing clinical variation," Welfeld says. "And we want to collaborate with hospitals and managed care organizations because we feel that's the real world."

Welfeld says the network would contract with an MCO to provide all case management services, negotiations with providers, additional stop-loss insurance, patient education, psychosocial counseling and support, and medical services. Affiliated Physicians Network currently is working on contract negotiations with MCOs for breast cancer and other cancer treatment.

Case rates have been tried on a very limited basis so far, says Aran Ron, MD, MBA, senior medical director of North Metro Region, Oxford Health Plans in White Plains, NY. Ron also spoke at the National Managed Health Care Congress on the topic. Oxford Health Plans has 2.1 million HMO members, mostly on the northeast U.S. coast, and $4 billion in annual revenues.

The Health Care Financing Administration has done some global case rating of cardiac conditions for two- to three-week periods of time. But that mostly has involved setting up a financial mechanism of including the physician and hospital payment in one rate, Ron says.

"Part of our effort was to collect outcomes data to see how patients did," Ron says. "It's too early on our end to see how it worked out."

MCOs are interested in global case rates because they give specialists a strong incentive to control costs and provide outcomes data on specific diseases, Ron says.

Specialists are interested in global case rates because the payment model represents an opportunity for them to benefit from their own efficiency efforts. And consumers will benefit because global case rates will control specialty costs effectively without micromanaging physicians, Ron says.

Case rates provide lower volatility from an actuarial point of view, Welfeld says.

"You can develop very detailed pathways, so you are in fact limiting variation and limiting exposure to risk," he explains. "Also, it's very clear what the incentives are."

Physicians will understand the risk because they have developed the pathways and already have agreed to the care decisions that are outlined on the pathways.

For example, suppose a physician group has developed a pathway for breast cancer. That pathway will include several subpathways that show what happens when a patient has different complications. One subpathway might cost $4,000, and another might cost $40,000.

Ideally, the physician group will negotiate to receive different payments from an insurance company depending on which subpathway a patient takes, Welfeld says. This would give the physicians total control and responsibility over the costs of caring for these patients. It also would protect them from the risk of having too many $40,000 patients and too few $4,000 ones. This way, if the physician group routinely spends $6,000 on cases that the pathway says should only cost $4,000, then the physicians alone bear that $2,000 loss. Likewise, if they were able to cut costs and spend an average of $3,500 per case, then they would share the $500 per case profit.

But if for some reason the physicians are referred a high proportion of very sick breast cancer patients in a year, then the insurance company accepts that risk.

However, Welfeld acknowledges, it might be difficult for physician groups to convince insurers to accept separate contracts for different subpathways of one disease.

The other bad news about global case rates is that they require an organization to deal with the health care politics of physician-hospital organizations, hospitals, specialists, and other entities, Welfeld says.

Plus, the market may not be ready for case rates. "The managed care organizations are not prepared to fully partner, so you will have to find the ones that really want to partner with you, share risk with you, and deal with real operational issues," Welfeld adds.

Still as physicians continue to organize in specialty areas, they might move toward using global case rates, or at least a combination of global case rates and traditional capitation contracts, Ron predicts.

"I think you'll end up with a mixture of both," Ron says. "It remains to be seen how popular it will be."

[Editor's note: For ordering information on Welfeld's book, Contracting with Managed Care Organizations: A Guide for Health Care Providers, contact the American Hospital Association Press in Chicago at (800) AHA-2626.]